A parable on quantitative easing

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When my son was a little less than two years old, I used to play a game he liked, bouncing him up and down on my knee while chanting a nursery rhyme:

Half a pound of tuppeny rice
Half a pound of treacle
Mix them up and make them nice
Pop goes the weasel!

On â€śPop goes the weasel!â€ť I would sharply drop my knee all the way down and let him bump to the floor. He always chortled. He liked the game so much that one dayhe asked me to repeat it over and over again, perhaps fifteen times, laughing at each bump except the last one, when he turned to me in surprise and asked: Why itâ€™s not funny anymore?

Author Profile

Emanuel Derman is Head of Risk at Prisma Capital Partners and a professor at Columbia University, where he directs their program in financial engineering. He is the author of My Life As A Quant, one of Business Week's top ten books of the year, in which he introduced the quant world to a wide audience. His latest book, due in October from Free Press, is Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disasters,On Wall Street and in Life.